EU-UK Brexit deal and other factors that will determine the rupee direction on Friday

The Indian domestic market rallied while rupee appreciated and settled at 71.16 on Thursday on hopes of positive outcome of US-China trade deal, news of the UK and EU striking a deal, consistent weaker US economic data and strong FII participation in Indian equities.

The US dollar (USD) to China Offshore Spot (CNH) had been a bit volatile as well fluctuating in the range of 7.0673 per dollar and 7.1078 per dollar levels, while Brent continued to remain stable around $59 a barrrel, a larger than expected rise in the US crude stockpiles was seen. US industrial production came in below estimates while housing starts eased in September.

The fall was driven by the multifamily segment, where starts fell by 28.2 percent, after rising sharply by more than 41 percent in the prior month. Weak US data points are opening doors for a Fed rate cut at its October policy. China's Q3 GDP came in at 6 percent lower than expectations of 6.1 percent, which is the slowest growth since the first quarter of 1992. Growth concerns across economies continue to prevail.

Based on the optimism of the UK -EU deal, GBP-USD hit 1.2990 levels, the highest levels since May 13. Immediate support comes at 1.2710 (200 DMA) followed by 1.2650 and resistance comes at 1.2990 levels (Thursday's day high) followed by 1.3052 which is May 10th high, while EUR-USD made a two- month high of 1.1140 levels. Immediate support comes at 1.1060 levels (50DMA), which is a 21-day simple moving average and major resistance at 1.1186, which is 61.8 percent Fibonacci levels of 2017-2018 rally.

Let us now understand in brief the 'New Brexit Draft Deal':

The UK will continue to abide by EU rules until the end of 2020.

All the rights of UK citizens in EU and EU citizens in UK will be guaranteed.

There is a divorce bill worth £33 billion, which the UK will pay to EU.

Northern Ireland will be aligned to EU single market and the EU's customs code would be enforced on goods coming from the UK into Northern Ireland.

A joint EU and UK committee will be formed which will together decide which goods can be at a risk of entering the single market.

The Northern Ireland Assembly will get a vote every four years on whether to continue with the new trading arrangements.

Northern Ireland will remain an entry point into EU's customs zone. As long as products are not destined for onward transportation across the border, the UK will not apply tariffs. The EU and the UK will aim for a zero-tariff deal with unlimited quotas.

EU law on VAT will apply in Northern Ireland.

The island of Ireland is considering a single market for electricity so houses in Northern Ireland can get the energy from a supplier from Northern Ireland or the republic.

The UK to remain in line with the EU conventions on environment, climate and workers rights in future trade agreement.

The Democratic Unionist Party (DUP) doesn't seem to be prepared to back this package because it does not give power over the new customs arrangement, which it feels could threaten Northern Ireland's position in the UK. Now, there will be a Parliamentary vote on Saturday for the deal.

UK premier Boris Johnson will make a statement to law-makers followed by a 90-minute debate and then voting. The PM needs at least 318 votes for victory in the 650-seat parliament. There are 288 Conservative seats, which may work in his favour.

Euro and pound will continue to remain volatile basis on Brexit headline data from Day 2 of EU Summit today while rupee can be expected to see further appreciation based on weak US data points, but such moves can be short lived. In USDINR pair, 70.70 remains the first crucial support followed by 70.35 while 71.72 remains the first resistance followed by 72.20.